Calif. PUC Adopts Central Procurement For Multi-year Local Resource Adequacy At Two Utility Service Areas
June 12, 2020 Email This Story Copyright 2010-20 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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The California Public Utilities Commission (CPUC) adopted a framework that designates a central buyer to procure local, multi-year resource adequacy in the Pacific Gas and Electric Company (PG&E) and Southern California Edison (SCE) distribution service areas.
Beginning in 2021, PG&E and SCE will serve as the central procurement entities for their respective distribution service areas and will begin procuring local resource adequacy for the 2023 compliance year.
The Decision declined to adopt a central procurement framework for the San Diego Gas and Electric (SDG&E) distribution service area at this time.
The PUC said in a news release that, "The CPUC’s Decision adopts a hybrid procurement model that tasks the central procurement entities with the responsibility to procure the entire amount of required local resource adequacy on behalf of all load serving entities (LSEs), while still allowing individual LSEs the opportunity to procure their own local resources. If an LSE procures its own local resource, it may (1) sell the capacity to the central procurement entities, (2) utilize the resource for its own system and flexible resource adequacy needs, or (3) voluntarily show the resource to meet its own system and flexible resource adequacy needs and reduce the amount of local resource adequacy the central procurement entities will need to procure for the amount of time the LSE has agreed to show the resource."
"With regards to SDG&E’s distribution service area, the Decision declines to adopt the central procurement entities framework, recognizing that the SDG&E service area is uniquely situated in that the local resource adequacy requirements, which must meet a higher reliability threshold than system capacity requirements, exceed the system resource adequacy requirements for most months of the year. Given that local capacity procured by the central procurement entities would also count towards LSEs’ system resource adequacy requirements, LSEs would have very little procurement autonomy for system resource adequacy requirements if a central buyer were to procure all needed local capacity," the PUC said
The Cost Allocation Mechanism methodology was adopted as the cost recovery mechanism to cover procurement costs incurred in serving the central procurement function. The administrative costs incurred in serving the central procurement function shall be recoverable under the Cost Allocation Mechanism.
The CPUC said that it is open to considering a compensation mechanism for local capacity requirement reduction achieved through shown local resources by LSEs. The Decision directs parties to form a Working Group to develop proposals for a local capacity requirement reduction compensation mechanism and the treatment of existing contracts.
The Decision considered but ultimately rejected a proposed Settlement Agreement putting forward a residual model where individual LSEs would procure all resource adequacy and voluntarily show their procured capacity to the central buyer. Under this rejected mechanism, based on the shown capacity, the central buyer would have then determined the residual amount of local resource adequacy that would be needed to be procured to avoid individual or collective deficiencies
The PUC specifically ordered that Pacific Gas and Electric Company and Southern California Edison Company shall serve as the central procurement entities for their respective distribution service areas for the multi-year local Resource Adequacy (RA) program beginning for the 2023 RA compliance year.
The hybrid central procurement framework for local resources was adopted for Pacific Gas and Electric Company (PG&E) and Southern California Edison’s (SCE) distribution service areas. Load serving entities in PG&E’s and SCE’s distribution service areas will no longer receive a local allocation beginning for the 2023 Resource Adequacy compliance year.
The hybrid central procurement structure was adopted as follows:
a. If a load serving entity’s (LSE) procured resource also meets a local Resource Adequacy (RA) need, the LSE may choose to: (1) show the resource to reduce the central procurement entity’s (CPE) overall local procurement obligation and retain the resource to meet its own system and flexible RA needs, (2) bid the resource into the CPE’s solicitation, or (3) elect not to show or bid the resource to the CPE and only use the resource to meet its own system and flexible RA needs.
b. If an LSE elects to show a local resource, it may either: (1) do so in advance of the CPE’s solicitation, if it does not
intend to bid it into the solicitation, or (2) bid the resource into the CPE’s solicitation but indicate in its bid that the resource will be available to meet local RA requirements even if it is not procured by the CPE, which may reduce the total procurement costs the CPE incurs on behalf of all LSEs.
To transition to the central procurement framework in the Pacific Gas and Electric Company and Southern California Edison distribution service areas, the following adjustments to the three-year local requirements were adopted:
a. For 2020, the 50 percent requirement for the 2023 compliance year is eliminated. The 100 percent two-year requirement remains.
b. Therefore, in 2020, load serving entities (LSEs) shall be responsible for 100 percent of their 2021 and 2022 local requirements. In 2021, LSEs are responsible for 100 percent of their 2022 local requirements.
The central procurement entity (CPE) shall conduct a competitive, all-source solicitation for local Resource Adequacy (RA) procurement with the following requirements:
a. Any existing local resource that does not have a contract, any new local resource that can be brought online in time to meet solicitation requirements, or any load serving entity (LSE) or third-party with an existing local RA contract may bid into the solicitation.
b. If an LSE-procured local resource is not selected by the CPE, the local resource may still count towards the LSE’s system or flexible RA obligations, if applicable.
c. RA attributes shall remain bundled and LSEs shall receive credits for any system or flexible capacity procured during the local RA or backstop processes, based on coincident peak load shares, as is currently done with Cost Allocation Mechanism (CAM) resources.
d. CAM resources and investor-owned utility local Demand Response resources shall reduce the local RA amount that the CPE must procure.
e. The CPE shall include dispatch rights, or other means that stipulate how local resources bid into the energy markets, in its solicitation as an optional term that bidders are encouraged to include.
A distribution utility that is acting in its capacity as a central procurement entity (CPE) shall bid its own resources, that are not already allocated to all benefiting customers, into the solicitation process at their levelized fixed costs. A distribution utility that is not acting in its capacity as the CPE is not required to bid its resources into another CPE’s solicitation at their levelized fixed costs.
Investor-owned utility (IOU) resources procured by the central procurement entity shall be reclassified from their existing cost recovery mechanism designations to the Cost Allocation Mechanism (CAM) for the duration of the contract with the central procurement entity. After that time, IOU resources shall be reclassified back to their existing cost recovery mechanism designation
The Resource Adequacy timeline was modified in anticipation of the 2023 compliance year and future years, as set forth in the PUC's order (linked below)
The PUC authorized a working group to assess and develop a Local Capacity Requirement (LCR) reduction compensation mechanism that properly compensates load-serving entities for shown local preferred and energy storage resources.
The working group shall also consider and submit a proposal on the treatment of existing contracts, which may include consideration of whether any proposed Local Capacity Requirement reduction compensation mechanism should be applied to existing contracts.